Much has transpired in Washington since the last column that is sure to affect the political landscape as well as manufacturers of medical products. On Nov. 6, over 113 million people voted in elections for all 435 members of the U.S. House of Representatives, roughly one third of the U.S. Senate, 36 governorships, and various state and local races. The result is a divided Congress, as Democrats obtained a majority in the House and Republicans expanded their Senate majority. On the House side, a Democratic wave emerged, with Democratic candidates flipping 40 Republican-held seats. Republicans suffered the most losses in suburban areas, where President Trump’s approval rating is particularly low. Democrats are now left with a substantial 235-199 House majority with one race, North Carolina’s 9th district, undecided.

In the Senate races, President Trump’s approval appeared to be a boon to Republican challengers hoping to oust Democratic Senators in red states. Republicans were able to flip four Democratic Senate seats in Florida, Indiana, Missouri, and North Dakota. However, the President appeared to hurt Republican candidates in purple states where he is not particularly popular, as Republicans lost two previously held Senate seats in Nevada and Arizona. Regardless, Republicans expanded their Senate majority to a 53-47 seat advantage, which should give Senate Majority Leader Mitch McConnell (R-KY) slightly more breathing room on close votes.

Democrats also performed well at the state level, flipping control of seven governorships. On election day, Democrats also picked up control of seven state legislative chambers. Since the election of President Trump in 2016, state-level Democrats have broken five Republican supermajorities and flipped 380 legislative seats. This is not unprecedented, since the party out of the White House usually picks up seats in Congress and state governments, as was the case for Republicans during the Obama years.

The 2018 midterm elections were particularly notable due to the unprecedented level of voter participation. Over 49 percent of eligible voters turned out on election day, making 2018 the highest level of turnout for a midterm election in 104 years. Another unparalleled aspect was spending, estimated at over $5 billion, which would make 2018 the most expensive midterm election cycle to date. Both parties raised massive amounts of money, but Democrats outraised Republicans by over $700 million, which certainly helped their candidates down ballot. Noteworthy to members of the life science community, healthcare was the number one issue for voters cited in exit polls. To their advantage, Democrats campaigned heavily, and won, on healthcare, with Democratic outside groups spending nearly half of their dollars on healthcare ads in both House and Senate races. This is particularly important given the significant number of new Democratic members who will seek to make healthcare reform a priority in the new Democrat-controlled House. Also affecting the dynamics of the new Congress is the fact the House lost some of its biggest life science champions in the midterm elections, as Rep. Erik Paulsen (R-MN), who led House efforts to repeal the device tax; Rep. Mimi Walters (R-CA), a champion of healthcare innovation; and Rep. Peter Roskam (R-IL), the former Chairman of the House Ways and Means Health Subcommittee, were all defeated in November.

116th Congress Begins
The new year will bring much change to Washington as Democrats will have control of the House for the first time in eight years. On Jan. 3, Democrats elected Nancy Pelosi (D-CA) to be Speaker of the House; she returns to the position after serving as Speaker from 2007-2011. Democratic leadership has a number of priorities geared up for the new Congress such as campaign finance reform, legal status for Dreamers, and gun control. For healthcare, which remains at the top of the list of Democratic priorities, the House plans to go after healthcare and prescription drug costs, protect the Affordable Care Act (ACA), further address the opioid crisis, support Medicaid expansion, and consider Medicare for all. With control of the committees, House Democrats also plan to investigate drug companies and CEOs responsible for the opioid crisis as well as raising the price of pharmaceuticals.

With the Senate still in Republican hands, many of House Democrats’ ambitious proposals may be sidelined, but there are a few potential areas of bipartisanship. A Democratic House appears to be more fertile ground for legislation to stabilize the ACA’s insurance markets such as the bipartisan Alexander-Murray bill, which failed to reach the House or Senate floor last year. Additionally, there could be some bipartisan commitment to examine drug pricing legislation. Recently, the Trump Administration proposed policies that seek to lower the cost of drugs in Medicare Part B and Part D. With the President and the Administration on board, a Republican Senate could be swayed to support such measures.

As of late January, any legislative priorities for the 116th Congress are currently tied up in the partial government shutdown, which began Dec. 22, 2018. The shutdown began as funding for some federal agencies expired due to an impasse over border wall money between Congressional Democrats and the White House. President Trump threatened to veto legislation that does not include border wall funding, and Senate Majority Leader McConnell said the Senate would only take up legislation to end the shutdown that has the support of the President. Senate Minority Leader Chuck Schumer (D-NY) and Speaker Pelosi have stated they will not support any funding for a border wall. Of note to the medical device industry, the shutdown impacts the U.S. Food and Drug Administration (FDA), among other agencies. The FDA will continue to accept device applications that do not require a user fee and will continue working on applications filed before the shutdown, as well as respond to public health emergencies. The FDA will not continue some routine regulatory and compliance activities related to medical products, including routine facility inspections or new product applications requiring a user fee, which may affect the device sector and the development and approval of novel innovative medical technologies.

Impact on the Device Industry Medical Device Tax
One of the most critical federal issues facing manufacturers of medical devices in the 116th Congress is the re-establishment of the 2.3 percent excise tax on medical devices, which will go into effect Jan. 1, 2020, unless it is eliminated or suspended. A last-ditch effort to delay the tax for five additional years failed at the end of the last Congress. On Dec. 20, 2018, the House passed H.R. 88, “The Retirement, Savings, and Other Tax Relief Act,” which included a provision to suspend the medical device tax until Jan. 1, 2025. However, the Senate failed to take up the legislation before the end of the 115th Congress on Jan. 3, so any legislative fix to the tax must be re-introduced in the new Congress. The new Democrat-controlled House poses a more challenging landscape for device tax relief as many Democrats view repealing the tax as a handout to industry and as a tool to defund Obamacare. Only 57 House Democrats supported H.R. 184, “The Protect Medical Innovation Act,” which would have fully repealed the tax and passed the Republican House in July.

Affordable Care Act
It appears that legislative efforts to eliminate the Affordable Care Act (ACA) are over, given the House is now in Democratic control. Furthermore, in the House midterm elections, many Democratic challengers defeated incumbent Republicans on charges that these Republicans would eliminate protections for preexisting conditions by getting rid of the ACA. Repealing the ACA has become politically unpopular, as nearly 75 percent of the public say it’s important that ACA’s protections for people with preexisting conditions remain law, according to a Kaiser Health Tracking Poll. The future of the ACA is further complicated by a Dec. 14, 2018, ruling by U.S. Federal District Court Judge Reed O’Connor of Texas. O’Connor ruled that the individual mandate in the ACA is unconstitutional due to its elimination following passage of the Tax Cuts and Jobs Act of 2017, as well as inseverable from the entire ACA. Without the mandate serving as a tax to enforce the ACA, Judge O’Connor determined the entire law is invalid. O’Connor’s ruling has received significant pushback and is sure to be appealed to the U.S. Supreme Court. The ruling could have a significant near-term impact as the medical device excise tax was created as part of the ACA, and may be invalidated depending upon the fate of O’Connor’s ruling. Additionally, the case will jumpstart efforts in the 116th Congress to shore up support for the ACA and coverage of preexisting conditions. Already, Speaker Pelosi has called for a vote on a standalone resolution affirming the House’s authorization to intervene in state lawsuits challenging the constitutionality of the ACA.

Oversight and Investigations
Another priority for a Democratic House is more oversight and regulation of the healthcare industry in general. Chairman of the House Oversight and Government Reform Committee Elijah Cummings (D-MD) has stated he intends to bring pharmaceutical company CEOs in to testify before Congress to explain the high costs of drugs. Following suit, House Energy and Commerce Committee Chairman Frank Pallone (D-NJ) and House Ways and Means Committee Chairman Richard Neal (D-MA) have both declared the high price of healthcare to be a top priority for their respective committees. House committee chairs have the authority to unilaterally issue subpoenas to launch investigations, including the authority to demand company documents, hold private meetings with corporations, conduct hearings, and compel testimony. While pricing criticism of late is mostly confined to the drug industry, devices are not immune from being looped into the conversation. Expect the 116th Congress to put significant scrutiny on manufacturers of healthcare products in general as House Democrats could use investigations to draw public attention and influence companies’ business strategies and operations.

Jeffrey J. Kimbell, president and founder of Jeffrey J. Kimbell & Associates Inc., represents 35 clients in the life sciences community seeking legislative and policy remedies in Washington. Founded in 1998, the firm provides strategic solutions to hand-selected clients seeking creation, modification, or proper implementation of public law.

David C. Rudloff is a manager of government relations at Jeffrey J. Kimbell & Associates, Inc. He previously worked as a litigation paralegal at Covington & Burling in Washington, D.C. David graduated from Davidson College in 2016 with a B.A. in political science.

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